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Is NPS better than old pension schemes?

Dhirendra Kumar explains the difference between NPS and the old pension schemes


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Is NPS better than old pension scheme for government employees?
- Govind

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Only time will tell. But I am very hopeful that NPS will not be a disapppointment even for government employees. The old pension scheme was a defined benefit scheme where the government promises that once you retire, you will get so much pension based on the last drawn salary. And the pension will also get adjusted for inflation with periodic DA and pay commission that gets revised.

In NPS 10 per cent of your salary is deducted every month for a contribution towards NPS and the same amount is matched by the government. So, effectively your money doubles every month. For example, if your salary is Rs 10,000, Rs 1,000 (10 per cent) would be deducted as a contribution towards NPS, and government would also contribute Rs 1,000. So, the total contribution for a month would be Rs 2,000. This keeps happening every month till you retire. NPS is generating reasonable return and in the future employees will also get an opportunity of choosing. Right now there is no choice for the the government employees to choose a plan where there money is invested. They will have greater flexibility to choose in the future.

So, I am very hopeful that it will translate into something substantial. It works like an SIP where your contribution is matched by the government and the money effectively doubles every month.

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